Through a series of economic charts and graphs, the authors show that in the presence of a negative externality, firms will produce too much of the private good that generates the externality. Ronald Coase’s work in studying externalities is mentioned and his argument that “in situations in which property rights are clearly defined and costless to enforce, and utility is linear in wealth, costless bargaining among participants will lead to an economically efficient level of external effect” is analyzed. This theorem’s limits are tested when there are many parties involved in an issue and furthermore the authors recognize the restrictive assumption of the Coase model since it assumes zero transaction costs in the exercise of property rights.